1. Consider a market of two (2) firms that each produce the same thing. Market demand is P = 230 - Q and marginal cost is $20 for both firms. If the firms decide to COLLUDE, what will be the MARKET quantity and MARKET price?

A) Q = 70, P = $160

B) Q = 175, P = $55

C) Q = 105, P = $125

D) Q = 140, P = $90

----

2. Considering the market described in the previous question, would it be in each firm's best interest to continue with the collusion agreement?

A) Yes, because each firm's best response function gives a quantity that is the same as the collusion quantity.

B) No, because collusion raises marginal costs in the long-run.

C) No, because each firm's best response function gives a quantity that is different than the collusion quantity.

D) Yes, because both firms are only profitable with the collusion agreement.